Accepting the need for change

Giant Eagle Inc. is one of the nation’s premier regional grocers. With 216 Giant Eagle and Market District supermarkets and 258 GetGo convenience stores, the company is a leader in its operating area, which includes western Pennsylvania, where it is headquartered; north central Ohio; northern West Virginia; central Indiana; and Maryland. The stores generate some $9 billion a year in revenue, putting the retailer on the Fortune 40 list of the largest privately held companies.

A large, successful, family-owned organization, Giant Eagle, like most other players in the still highly fragmented grocery business, finds itself in the uneasy position of having to implement a strategy that will enable it to continue to flourish in a channel in which scale is increasingly important, and in a broader market in which e-commerce and technology are transforming the competitive landscape. CEO Laura Karet, whose great-grandfather was one of the five men who founded the company in 1931, spoke insightfully about the challenges and opportunities confronting grocers at the Food Marketing Institute’s recent Midwinter Conference in Miami.

Appearing at the first of two plenary sessions, Karet, who was chairman of the event, offered a refreshingly frank assessment of how supermarket operators need to respond to forces reshaping the industry at an unprecedented pace. “We are all trying to seek answers about how to evolve our businesses so we can thrive as the world changes,” she said. “And this change is happening fast, and in ways that directly challenge how we all grew up. Competition is coming from places that none of us would have imagined even a short while ago. We now must learn how to be software companies, digital marketers, restaurateurs — and we need to do it now.

“We are used to shipping things in pallets and cases, not picking individual customer orders. We are used to the mantra being, ‘Keep the cash registers running, and make sure the trucks show up on time.’ Our definition of pricing has been once-a-week shelf tag changes to coincide with the new ad, and managing our gross margin percentage — not dynamic, individualized pricing based on total cost to serve.

Taken together, those forces are placing unprecedented pressure on operators of traditional brick-and-mortar food stores, but Karet reminded her audience that those companies possess substantial resources to build on, including an understanding of what it takes to run a business that involves myriad suppliers and an abundance of fresh products; an intimate connection with customers; and locations close to where people live and work. “Our central role in the community, which started with being the neighborhood grocer, is an asset that should not be taken lightly,” she said.

The trade class’ undoubted strengths should not, however, give cause for complacency. Karet cited several trends that are altering the rules of the game for sellers of food and beverages — a growing range of consumer demands relating to convenience, product options and the shopping experience; new definitions of value; and a desire for transparency and trust. Those factors, together with rapid-fire innovations by rival retailers, necessitate changes in how grocers define what they do.

Supermarketers “must figure out how to be food producers and manufacturers, not just retailers,” asserted Karet. “This means our stores and cafes must become commissaries, production centers and restaurants. We can’t just stock what others have made for us; we have to be deeply embedded in the food production chain — whether it’s designing proprietary times that partners make for us; adding in-store production like fresh-cut fruit into our stores; going all out and building commercial kitchens; or buying the capabilities of others, such as acquiring meal kit ­companies.”

Omnichannel retailing is another riddle that conventional grocers must solve.

“The supermarket is and has been a marketplace, and we’ve somewhat lost sight of that as an industry,” said Karet. “Bricks and mortar are not dead. If Amazon’s purchase of Whole Foods didn’t convince you of that, then how about the other pure-play e-commerce players getting into bricks and mortar, such as Warby Parker, Boll and Branch, Alibaba and Bonobos.

“No, bricks and mortar play a vital role in the emerging retail landscape. There is a convergence of e-commerce and bricks and mortar, not a divergence.”

Things will have to change if the leaders in food retailing today want to retain their standing tomorrow. Blind faith in business as usual will likely be the death knell for conventional ­supermarkets.

“The size of our stores will contract,” Karet said, “but you might ask yourselves what else can we offer in the space that we have? What can we be famous for both digitally and in-store, and how can we sell more things online? In summary, the good news is that our retail grocery industry is poised to provide optionality and choice. We have advantages that are going to be hard to take away.”

Giant Eagle’s CEO reported that, while Giant Eagle does not have answers to all of the urgent questions that confront the industry, its ongoing attempts to deal with them have thus far resulted in profitable growth. After listening to Karet’s clear-sighted assessment of the current retail scene and traditional grocers’ place in it, that comes as no ­surprise.